3: Judicial Collection: Judgment liens, Garnishment

© Charles Tabb 2010

I don’t want a subtitle. How do I kill this off?

Problem 1.10

• Facts:– May 1: Creditor obtains a docketed money judgment against

Debtor for $5,000 in Alpha County. As of that date, Debtor owned Blackacre, a parcel of real estate in Alpha County, worth $8,000. Creditor does nothing.

– May 15: Debtor sells Blackacre to Purchaser, and Purchaser immediately records her deed in the real estate records of Alpha County.

• Question:– What are the relative priority rights of the parties to Blackacre

under the majority rule (e.g., New York)?

Answer to 1.10 -- majority

• Creditor wins• Judgment lien on docketing

–Illustrates how powerful a tool the judgment lien can be for a judgment creditor

1.10 – minority?

• What are the relative priority rights of the parties under the minority rule (e.g., California)?

Answer 1.10 -- minority

• Purchaser wins

• Must record

• Creditor never recorded, so by default P was “1st” to record

Problem 1.11• Facts:

– May 1: Creditor A obtains a docketed money judgment against Debtor for $5,000 in Alpha County. On

– June 1: Creditor Z obtains a docketed money judgment against Debtor for $5,000 in Alpha County.

– July 1: Creditor Z files notice of its judgment in the real estate records of Omega County.

– At all relevant times, Debtor owns Blackacre, a parcel of real estate in Omega County, worth $8,000.

• Question:– What are the relative priority rights of the parties to Blackacre under the

majority rule? Under the minority rule?

Answer 1.11

• Creditor Z wins• For land in another county, must RECORD in

real estate records of that county to get judgment lien

• Z is only one who has done that• A has nothing so far• No difference in majority or minority states on

out of county land – always must record

Problem 1.12

• Facts:– May 1: Creditor obtains a docketed money judgment against

Debtor for $5,000 in Alpha County. Creditor promptly files notice of its judgment in the real estate records of Alpha County.

– Four years later, Debtor’s aunt Betty dies, and Debtor inherits Blackacre, a parcel of real estate located in Alpha County, worth $8,000. Six months later, Debtor files bankruptcy.

• Question:– Does Creditor have a secured claim in the bankruptcy case?

Answer 1.12

• Yes– Creditor has judgment lien against Blackacre at the instant Betty dies and Debtor inherits

• After-acquired reach of judgment lien – awesome!

• Creditor doesn’t have to do anything new, once recorded

Problem 1.13

• Facts:– May 1: Creditor judgment vs. Debtor for $5,000 in

Alpha County; records in Alpha County. – Year later: Debtor purchases Blackacre -- parcel of

real estate in Alpha County, worth $8,000. Debtor pays for Blackacre with a loan from Bank, and grants Bank a mortgage on Blackacre to secure that debt.

• Question:– What are the relative priority rights of the parties to

Blackacre?

Answer to 1.13

• Bank wins• Exception to normal “1st in time” rule for

Purchase Money claim

Rationale for Purchase Money Exception?

● Fair – w/o PM lender’s $, Dr not get asset

● Incentives – otherwise Dr

could never get new loans if prior liens with after-acquired power

McDermott - Facts

• December 1986: US assesses Debtors – Tax lien arises

• July 1987: Bank dockets judgment– Judgment lien arises

• Sept. 9: US files notice– Perfects tax lien

• Sept. 23: Debtors acquire property in county

McDermott -- issue

• Who has priority as to the Debtors’ after-acquired property, US (tax lien) or Bank (judgment lien)?

McDermott – possible answers

• Bank wins

• Tie

• US wins

Argument that Bank wins? (dissent)

• Priority dates from July, when docketed• At that point, under state law (which as a

matter of federalism should be respected), there was nothing more to be done, and no way intervening creditors could trump the Bank as to after-acquired property

• Under 1st in time, July comes before Sept., when US tax lien was enforceable vs 3rd parties

Argument that it is a TIE (dissent footnote 4)

• BOTH the Bank and the U.S. got enforceable liens at the same instant – when the Debtors acquired the property on September 23

• Before that time, there was no property for their liens to attach to

Holding: U.S. wins

• Bank’s priority dates from Sept. 23 – when debtors acquired property– Bank’s lien not sufficiently definite as to property

subject to lien until Debtors acquired property• U.S. priority dates from Sept. 9– Once filed notice of lien, U.S. protected vs 3rd

parties– Even if it has not yet attached to any property

McDermott: what if not after-acquired?

• Would the outcome have been different if the debtors had already owned the contested property at the time the judgment creditor docketed its judgment?

Answer if not after-acquired property

• Bank would win• Have extant lien as of date docketed

(July)• 1st in time vs US, which only gets

enforceable rights vs 3rd party when filed notice (in Sept.)

McDermott –different notice time?

• what would have happened if the U.S. had not filed its notice of tax lien until September 24, 1987, after the debtors acquired the subject property?

Answer – different notice time

• Bank wins

• Bank priority date: Sept 23, when debtors acquire property

• US priority date: Sept 24, when US files notice

• 1st in time: Sept 23 is before Sept. 24

McDermott – alternatives?

• Is there anything the losing judgment creditor could have done to change the outcome?

Answer to alternatives

• Nope• Nothing Bank could have done – did not and

could not get a sufficient judgment lien for purposes of fight with US until debtors acquired the property

• Whereas US could get enforceable rights before debtors acquired the property

Problem 1.14(a)

• Facts:– June 1: Creditor obtained a final money judgment

against Debtor for $5,000. Debtor has checking account at Bank, balance of $1,000.

– July 1: Creditor has writ of garnishment issued and delivered to the sheriff.

– 9:55 a.m. on July 2: Debtor withdraws $900– 10 a.m. on July 2: sheriff serves writ on Bank.

• Question:– What is Bank’s liability to Creditor? To Debtor?

Answer 1.14(a)

• Bank (garnishee) owes Creditor (garnishor) $100 – that was the amount of the debt Bank owed Debtor on account at precisely 10 a.m. (because Debtor had just withdrawn $900)

• Bank owes nothing to Debtor

1.14(b)

• Facts:– June 1: Creditor obtained a final money judgment

against Debtor for $5,000. Debtor has checking account at Bank, balance of $1,000.

– July 1: Creditor has writ of garnishment issued and delivered to the sheriff.

– 9:55 a.m. on July 2: sheriff serves writ on Bank– 10 a.m. on July 2: Debtor withdraws $900

• Question:– What is Bank’s liability to Creditor? To Debtor?

Answer to 1.14(b)

• Bank owes Creditor $1000 – that was the amount of the debt Bank owed debtor at the instant of garnishment (9:55 am) and thus the amount subject to the garnishment lien

• Bank has right to recover $900 vs Debtor (via subrogation)

Problem 1.14(c)

• Facts:– June 1: Creditor obtained a final money judgment against

Debtor for $5,000. Debtor has checking account at Bank, balance of $1,000.

– July 1: Creditor has writ of garnishment issued and delivered to the sheriff.

– 9:55 a.m. on July 2: Debtor withdraws $900– 10 a.m. on July 2: sheriff serves writ on Bank. – 4:30 pm on July 2: Debtor deposits $800

• Question:– What is Bank’s liability to Creditor? To Debtor?

Answer to 1.14(c)

• It depends• On what?– Whether state allows garnishment lien to capture

after-acquired property … there is a split– If capture, for limited time (till answer or trial)

• If does capture – then owes – Creditor $900, Debtor $0

• If does not capture, then owes– Creditor $100 (see 1.14(a)), Debtor $800 (the deposit)